Computer Associates 2005 Annual Report Download - page 125

Table of Contents
Note 6 — Debt (Continued)
Fiscal Year 1999 Senior Notes
In fiscal year 1999, the Company issued $1.750 billion of unsecured Senior Notes in a transaction pursuant to Rule 144A under the
Securities Act of 1933 (Rule 144A). Amounts borrowed, rates, and maturities for each issue were $575 million at 6.25% due April 15,
2003, $825 million at 6.375% due April 15, 2005, and $350 million at 6.5% due April 15, 2008. As of March 31, 2005, $825 million and
$350 million of the 6.375% and 6.5% Senior Notes, respectively, remained outstanding. In April 2005, the Company repaid the
$825 million remaining balance of the 6.375% Senior Notes from available cash balances.
5% Convertible Senior Notes
In fiscal year 2002, the Company issued $660 million of unsecured 5% Convertible Senior Notes, due March 15, 2007 (5% Notes), in a
transaction pursuant to Rule 144A. In March 2005, the Company redeemed the outstanding $660 million 5% Notes. The redemption
price was equal to $1,020 per $1,000 principal amount of the Notes, or 102% of the par value of the Notes, plus accrued and unpaid
interest to, but excluding, the redemption date. The 5% Note holders had the opportunity to convert their notes to shares of the
Company’ s common stock at a conversion price of $24.34 per share prior to the close of business on March 16, 2005. Substantially all of
the 5% Notes holders elected to convert their holdings to the Company’ s common stock (aggregate of 27 million shares of common
stock).
Concurrent with the fiscal year 2002 issuance of the 5% Notes, the Company entered into a call spread repurchase option transaction
(5% Notes Call Spread). The purchase price of the 5% Notes Call Spread was $95 million and was charged to Stockholders’ Equity in
March 2002. Under the terms of the 5% Notes Call Spread, the Company could elect to receive (i) outstanding shares equivalent to the
number of shares that would be issued if all of the 5% Notes were converted into shares (27 million shares) upon payment of an exercise
price of $24.83 per share (aggregate price of $673 million); or (ii) a net cash settlement, net share settlement or a combination, whereby
the Company would receive cash or shares equal to the increase in the market value of the 27 million shares from the aggregate value at
the $24.83 exercise price per share, subject to an upper limit of $36.60.
In March 2005, the Company exercised the 5% Notes Call Spread to buy 27 million shares of its common stock at the exercise price of
$24.83 (aggregate price of $673 million).
Fiscal Year 2005 Senior Notes
In November 2004, the Company issued an aggregate of $1 billion of unsecured Senior Notes (2005 Senior Notes) in a transaction
pursuant to Rule 144A. The Company issued $500 million of 4.75%, 5-year notes due November 2009 and $500 million of 5.625%,
10-year notes due November 2014. The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices
equal to the greater of (i) 100% of the aggregate principal amount of the notes of such series being redeemed and (ii) the present value of
the principal and interest payable over the life of the 2005 Senior Notes, discounted at a rate equal to 15 basis points and 20 basis points
for the 5-year notes and 10-year notes, respectively, over a comparable U.S. Treasury bond yield. The maturity of the 2005 Senior Notes
may be accelerated by the holders upon certain events of default, including failure to make payments when due and failure to comply
with covenants in the 2005 Senior Notes. The 5-year notes were issued at a price equal to 99.861% of the principal amount and the
10-year notes at a price equal to 99.505% of the principal amount for resale under Rule 144A and Regulation S. The Company also
agreed for the benefit of the holders to register the 2005 Senior Notes under the Securities Act of 1933 so that the 2005 Senior Notes may
be sold in the public market. If the Company does not meet certain deadlines for filing and effectiveness of the registration statement, the
interest rate on the 2005 Senior Notes will increase by 25 basis points for up to 90 days and by an additional 25 basis points thereafter,
until the delay is cured. The Company used the net proceeds from this issuance to repay debt as described above.
The Company capitalized the transaction fees associated with the 2005 Senior Notes, which totaled approximately $7 million. These
fees are being amortized over the period through maturity of the 2005 Senior Notes in the “Interest expense, net” line item on the
Consolidated Statement of Operations.
1.625% Convertible Senior Notes
In fiscal year 2003, the Company issued $460 million of unsecured 1.625% Convertible Senior Notes (1.625% Notes), due December 15,
2009, in a transaction pursuant to Rule 144A. The 1.625% Notes are senior unsecured indebtedness, rank equally with all existing senior
unsecured indebtedness and are convertible into shares of the Company’ s common stock at a conversion price of $20.04 per share. The
initial conversion rate is 49.9002 common shares per $1,000 principal amount of the 1.625% Notes and is subject to adjustment under
certain circumstances. The Company may redeem the 1.625% Notes only at the maturity date. We capitalized the initial transaction fees
associated with the 1.625% Notes, which totaled approximately $12 million. These fees are being amortized over the period through
maturity of the 1.625% Notes in the “Interest expense, net” line item on the Consolidated Statements of Operations.
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